Negotiation Strategies for Business Sellers
Deciding to sell your business is a major step, and this is likely to be one of the largest (if not the largest) transactions you will ever make. One of the major keys to ensuring a successful sale is to know how to negotiate with prospective buyers. By having a negotiation strategy going in, you will be much better prepared to end up with a deal that you will be happy with.
Here are some of the most important steps to take to prepare for negotiating with a buyer:
Know the Facts about your Business: If you have ever watched Shark Tank, you know that the business owners who fare best are the ones who know their numbers. If someone walks into the Tank without knowing their numbers and having their facts straight, they are eaten alive. This same principle holds true when you are negotiating to sell your business.
Someone who is considering buying your business is going to want to know everything they can before making this type of commitment. And toward that end, they will no doubt have some tough questions. For example, why are you selling the business? The answer to this question had better make sense and add up in the buyer’s mind, or they may become apprehensive about moving forward.
You should also be very familiar with your specific numbers, how your business is trending (e.g., are sales up or down in recent reporting periods?), concerns you may have about your competition, opportunities in the marketplace, and any pending lawsuits or other potential trouble that is on the horizon.
By knowing the facts, you will be able to more effectively address any potential problems your business may be facing. You will also be able to better highlight your strengths so your buyer can see why taking over your business is such a great opportunity.
Find Out what is Most Important to the Buyer: Knowing your own business is very important, and it is also important to find out as much as you can about the buyer. What are the buyer’s biggest concerns? Some common issues a buyer may have include the ability to obtain financing, lack of confidence that they can take over on day one, how they will be able to get along with the current employees, how they will be received by the current customer/client base, etc.
Underneath all of this is an inherent fear that they will not be able to make a go of it with your business. Knowing their specific concerns will allow you to think more creatively about how you can effectively address these concerns, so the buyer has the confidence they need to move forward with the deal.
Be Ready to Make Strategic Concessions
Picking up on the last point, think about some concessions you are willing to make during the negotiations in order to bring the deal across the finish line. For example, maybe you prefer to receive payment for your business in one lump sum, but you might be willing to entertain the idea of partially financing the transaction if that is what is needed to make things work for this particular buyer.
The buyer may also want you to stick around for a while, maybe 90 days, six months, or even a year in order to help them with the transition. This might not be possible in all cases, because maybe you are moving out of the area or you just don’t want to be involved in the day-to-day operations of the business.
One possible compromise would be to stay around for the first 30 days, then remain available remotely as a consultant for another year. This might help ease the buyer’s stress about what might go wrong during their first year running your business. Sometimes, issues that appear on the surface to be deal killers can be resolved with a little bit of creativity and out-of-the-box thinking.
Be Willing to Walk Away: It is tempting during a fairly involved negotiation to want to come away with something because of all the time and effort you put in, but it is important to realize that not every deal is workable. Going into a negotiation, you should have a bottom-line figure in mind that you are not willing to go beneath. Know that there are other buyers out there, so it is not imperative that you make a deal with this particular one; especially if it is clear that their offer is not going to meet your minimum requirements. Be ready to walk away and move on to the next prospect if the negotiation reaches an insurmountable impasse.
Work with an Experienced Business Intermediary: Negotiating the sale of a business is much easier when you have a seasoned professional assisting you with the process. Business intermediaries are an invaluable resource for business sellers, because they have in-depth familiarity with the ins and outs of the business sales process. They are not only able to act as an intermediary between the buyer and the seller, they are also able to leverage their resources to market the business to the widest pool of potential prospects. This puts the seller in a far better position to attract the right buyer, so they can receive top dollar for their business.